ADOTAS EXCLUSIVE — In Part 1 of this series, I argued that real money is being generated by social applications; that some developers of these games are making as much as $5,000 to $10,000 a day; and that there are a slew of developers making more than a million dollars a year from a single application (mostly on Facebook). In Part 2, I’m going to address how developers earned more than $30 million dollars in the last 12 months.
And in just a week since publication, we’ve seen even more money:
SocialMedia.com, one of the industry leaders, announced that their company alone has paid out more than $8 million dollars to developers in the last year.
In a post, commenting on that announcement, Lookery’s VP of Marketing Todd Sawicki stated his company has paid out more than $4 million.
Using these and other numbers to estimate the total revenue in the space, the money piles up quickly. The top 10 social media advertising companies have paid out between $30 million — $50 million to app developers in the last 12 months.
So the money is real and developers and ad networks with a strong presence in the social space are cashing in. As online marketers, we should all take a closer look at the current models, what’s working, and what’s likely to come next.
Direct Response Ad Models
It’s estimated that direct response advertisers account for between 80% – 90% of revenues generated by social apps. These are advertisers like Netflix, American Express and Stamps.com, who expect a direct ROI from their advertisements, carefully measuring the number of sign-ups, applications or products sold from each ad buy. The most prevalent ad models include:
CPM/CPC: As you would expect, impressions and clicks still play a large role in this advertising landscape. Companies like SocialMedia.com, Cubics, Lookery, RockYou and other display networks serve ads on billions of impressions across apps. It’s been estimated that there are about 25 billion impressions available on Facebook apps alone.
CPM (Cost per Thousand) rates can be anywhere from $0.05 to more than a $1.00. CPC (Cost per Click) rates tend to fluctuate between $0.10 – $0.50. All pricing depends heavily on the type of application, ad size, placement on the site and how integrated the advertisement is into the flow of the app.
Several of the larger players, offer targeting tools to optimize ad performance in the billions of available impressions. For example, SocialMedia.com offers an Appographic Segmentation tool, allowing advertisers to targeting certain groups of apps with similar characteristics. A recent Disney campaign was designed to only run on apps considered “Mom Friendly.”
CPA: There are two main ways to implement Cost per Acquisition advertisements into apps:
The first is to simply post advertisements (usually banners or text links) taken from ad networks like LinkShare, Commission Junction.com and CPAStorm.com. The developer earns a payout or bounty for each product sold or sign-up competed from their app.
Much more potent, though, is to use CPA offers to monetize an app’s virtual currency. This is the most inherently social of all of the models. Many apps have a virtual economies where users can earn and spend points (or other virtual currency). Users trade in the “points” to send a virtual piece of sushi to friend or “buy” a pink tutu for their virtual elephant on (fluff)Friends. Sometimes they just want to have the most “points” of all their friends. Developers have long used virtual economies to motivate users to perform viral actions like inviting friends to install the app, but CPA offers give users a chance to earn extra virtual currency. Users might complete a short survey, fill out a lead form, or even sign up for a service like Netflix. In exchange for completing an offer, they earn more of app’s virtual currency. Often times these interactions are real-time, so users can earn the virtual currency immediately, without even having to leave the app.
$uper Rewards (SRpoints.com), owned by KITNMedia is the industry leader in monetizing virtual currency. At current rates, they’re paying out more than $2 million to developers every month and growing. Insiders agree that they have “cracked the code” in regard to targeting and optimizing the right offers to the right people. Other companies providing this service include MyOfferPal, Memolink Inc’s PayBuyPartner.com, and Gratis Network’s SocialCash.
Even with the media hype surrounding social media, Fortune 500 companies are still testing the waters before jumping in with their marketing spends. Industry experts estimate only about 10% – 20% of revenue from social apps is from branding campaigns. Most of the branding efforts are focused in two categories.
Sponsorships: To create a solution for big consumer brands and movie studios, advertisers are working with developers on highly integrated and involved sponsorships. Brands want more than just banner ads; they want their color scheme or a logo to be the “skin” of the App, to have one of their products used as a virtual gift or to be a sponsor of a daily quiz or contest.
It’s also key for brands to align themselves with apps that make logical sense. For example when Sony Pictures’s “Maid of Honor” movie came out this Spring, Appssavvy, a company specializing in brand advertising on social applications, embedded graphics from the movie into the skin of the WeddingBook app, placed strategic advertisements and even ran a promotion offering one newly married couple the chance to walk down the red carpet at the movie premiere.
Chris Cunningham, CEO of Appssavvy, has met with more than 100 brands and agencies and says that we are just at the beginning of brands entering the social networks. “Brands will continue to endorse, support and spend money in the space. This is the fun stuff that brands truly get excited about.”
Pricing depends on the size of the app that you are working with and the level of integration, but I’ve heard pricing as low as $25,000 and as high as several hundred thousand dollars.
Custom Sites: A few developers generate revenue by building apps from scratch specifically for brands. One of the most successful examples of this is ParkingWars, built by area/code for A&E Networks, to promote the cable networks new reality TV show of the same name.
The app has been downloaded by almost 600,000 users and has almost 150,000 Daily Active Users who still play the game regularly.
This is not a large part of the industry yet, but could heat up as big brands see positive results and become more comfortable in the space.
Just as we described above how users can complete actions to earn additional virtual currency, a variety of apps are also allowing users to purchase additional currency using Paypal or other mechanisms that accept credit cards.
So far, this has been limited to a select number of apps, and is estimated to produce less than 5% of total revenue generated by social apps, but for some, it is generating significant revenue. On the HOT or NOT app, users view and rate photos, and can then send flowers to or flirt with other users on the app. The flowers cost $1 or $10 in real money and users frequently send the most expensive flowers to impress the person they are flirting with on the app.
It’s not certain how much revenue is being generated by sales of virtual goods. Many are skeptical that users will be willing to take out a credit card, especially for multiple mirco-transactions on different applications rather than having one account that could be used across all Facebook apps. A solution may be on its way. It’s expected that Facebook will launch a Facebook Payments platform, which would allow users to keep a balance that could be used to buy virtual goods, upgrades, and game enhancement on any of the 29,000 plus applications on Facebook with a single click. Adam Caplan from $uper Rewards, believes that “this will fundamentally change business. What we’ve been missing is the one click model.” This will not kill the CPA model of monetizing virtual currency, Caplan believes, but will instead help make the whole pie larger. As people start paying for upgrades and better game options and more people are participating, “there will always be the people who want the option of not paying.”
But details and timing are uncertain. Facebook confirms they are “working on a mechanism to enable our users to transact with developers,” but would not confirm a launch date or even a name for the product.
What works best?
Almost all agree that these ad models can be complementary. An application could use SocialMedia.com to serve hundreds of thousands of banners, $uper Rewards to monetize their virtual currency, and Appssaavy to find a brand sponsor.
Jeremy Liew, a Partner at Lightspeed Venture Partners, a VC firm that has invested in a variety of large social media companies, says that “All of the above have their place and you need someone doing ad operations to balance them out.”
Eddie Smith, VP of Marketing at SocialMedia.com, recommends that apps rotate a few different networks and ad models to give the user a more “diverse experience.” With different ads from different companies, different ad sizes and different ad placements, the user gets a better experience and overall click through rates and performance can see lifts.
Test, test and test some more
“Testing is easy. Test early and test often,” also, encourages Gordon Peters, VP of Business Development for Social Cash. He believes that the more closely SocialCash works with developers and they test as many solutions as possible, the more successful the results will be for everyone, developers and advertisers alike.
Advertising in social applications has really only existed for about a year, so it’s important to realize that these ad models are constantly changing, improving and adapting as we get more and more feedback from developers and advertisers.
What’s coming next?
One thing is for certain . . . change is definite, and will most likely bring better, more engaging apps to users and bigger piles of money for developers and advertising companies. Of this, we can be pretty confident . . . venture capital is pretty confident too, as evidenced by the hundreds of millions of dollars that has flowed into the space. And don’t be surprised if you see payouts to developers eclipsing the $100 million mark in the next 12 months.